ANTITRUST LAW OUTLINEPROF. CHRISTOPHER LESLIE SPRING 2007

- Sherman act is the main statute in antitrust law but it’s very short for a statute & wording isn’t clear

o Sec. 1 seems to make contracts illegal – it’s basically wrong as written

o Sec. 2 means what it says but doesn’t define terms it uses- Antitrust law is common law b/c precedent defines what the law is

Competition v. Monopoly- The goal of antitrust is to foster competition – why?

o Drives down prices b/c firms compete for sales o More goods are sold b/c at lower prices consumers buy

more & sellers need to sell more to turn profito Prevents monopoly pricing

Want to stop people from being excluded from market b/c prices too high but also want to protect people still in market from paying too much

o Creates better quality, services, etc. for products o Allows consumers to have better info about products b/c

info sharing (thru ads) occurs o Increases efficiency thru competitive pressureo Greater distribution of wealth – profit lost by monopolist is

shifted to consumers Antitrust populism – monopolies concentrate

economic power in few hands which is bad b/c creates concentrated political power

This is no longer in favor o If good is socially valuable don’t want one to control ito Allows market access for small businesseso Encourages investment in research & development/

innovation Counter-argument to this is that monopolies actually

encourage innovation b/c they have more money to spend on R & D – competition doesn’t have a lot of profits – also if monopoly allowed it’s a big incentive to innovate

L thinks competition-innovation is more likelyo More products/brands to choose from

- Antitrust is more concerned w/ economic benefits of competition than w/ public interest/policy benefits like employment

- Antitrust doesn’t set prices or regulate just make sure there is competition assumes the rest will follow

- On supply and demand curve efficient point is where supply intersects demand – this produces qc (competitive quantity) & pc (competitive price) – don’t want to produce more than this b/c cost of producing is more than benefit to society

- Consumer surplus (cs) is surplus get b/c they pay competitive price rather than a higher one

o CS can be transferred to producers by hiking prices - Producer surplus (ps) is profit producer makes above what it costs

to produce producto Dead weight loss is name for trans lost by monopolist that

would’ve occurred in comp. market- In a monopoly one group of consumers loses b/c of dead weight loss

(priced out of market) another b/c of transfer of cs to producers (have to pay higher price)

Cartels- In 19th C some industries had few firms so organized to act like

monopolists by forming cartels – needed stabilize cartels, wanted to be corp.’s but hard to get charter – used trusts to stabilize

- Problem w/ cartels is opportunism – cheating creates most profit for cartel members – but if everyone cheats cartel is destroyed

- Trusts helped stabilize – trust was run by trustee or Board of trustees which set prices, sales, and production

o Less cheating b/c people weren’t doing their own sales o Provided centralized control like corp. but didn’t req. auth.

of state – legally binding o Most major industries were controlled by trusts

Consumers hurt b/c prices artificially high Producers hurt – ex. acted as middlemen Convinced Congress to make high tariffs for imported

goods to protect selves from foreign comp.- Sentiment against trusts gathered such steam that it was a major

theme in 1888 political election- Antitrust legislation passed in 1890 – Sherman wanted this to be his

legacy – no hearings b/c he just wants bill passed thru o On debate no one wants to speak up for trusts even tho

they are benefactors o Debate is mostly on constitutionality of doing this o Sherman created stronger Sec. 1 – judiciary committee

vastly changes Sec. 1 and adds Sec. 2 o Passed w/o much comment by either House or Pres.o No one seems to have known what it means – they leave it

to the courts – thus the case law is the law

Monopolizing in Violation of Sherman Act §2

- Sec. 2 of Sherman Act – monopolization is illegal o Can be brought by private individuals or gov’t

- Main question is what does monopolize mean?o Not all monopolies illegal ex. utilities

American Can- Facts

o Market is tin cans used to store food productso AC has 50% market share – they basically do whatever

they can to get rid of comp.’s: buy them out, threaten them, try to cut off access to inputs, etc.

- Gov’t says AC uses anti-competitive actions to create monopoly o Threats combined w/ irrational overpayment to acquire

comp.’s, then destroy equip. – only makes sense if long term strategy is to create a monopoly

- AC argues o Improved industry by spending on R&D to improve inputs

Inputs are cheap – didn’t need to spend a lot on R&D Might be that competition would have lead to even

better improvements in can making o Standardized cans

Only one can maker so of course all cans same If consumers wanted standardized cans they would

have gotten in competitive market When AC hiked prices non-standard makers entered

market- Holding

o Not all monopolies violate §2 – only illegal if acquired market power thru illegitimate conduct

o Court holds AC violated §2 but doesn’t give gov.’t dissolution remedy they wanted

o Court says there are advantages to big co.’s – dissolution might negatively affect market

o Court says it will keep an eye on AC to make sure no more illegal activity during expansion

- AC used covenants not to compete w/ those they acquired – these aren’t inherently bad or condemned by antitrust

o Want to protect acquirers and make sure they get the good will they are paying for in their acquisition

o Don’t want sellers to be able to open another store nearby and steal away business from acquirer

o W/o covenant not to compete seller gets a lot less money b/c buyer is worried about competition

o Both parties want to be able to make this covenant o If people can’t sell their good will they won’t cultivate it b/c

it’s not worth anything

- Even if a competitor is less efficient a monopolist wants to get rid of it b/c even inefficient competitors still price constrain – thus monopolist can’t raise price as high as it wants to

- AC argued consumers wanted improvements they madeo Hard to tell what consumers value in monopoly market b/c

they have to buy from monopolist – no choiceALCOA- Must have market power to violate §2 – Court defines what is

monopoly market shareo 90% -- yes

Small co.’s can’t compete – incentive to charge same as monopolist

Minimal comp. won’t price discipline Firm will be able to act like monopolist, to hike price

and reduce output o 60-64% -- doubtful

Market has enough comp. here that we don’t have to worry about monopolist dominating

o 30% -- no Firm won’t be able to profitably act monopolistically

b/c too many competitors - This is always starting point for determining §2 violation- Market share depends on how you define product market

o Gov’t wants PM defined narrowly to make A’s share as large as possible – argues:

Scrap metal excluded b/c not a substitute for some consumers – they need pure ingot

Foreign comp. excluded b/c tariffs and transportation costs mean foreign comps have

o A wants PM defined broadly argues Scrap included b/c can be a substitute for ingot for

some consumers Foreign comp. included b/c it price disciplines A

- Court rules scrap not part of PM but Canadian production is part of geo market b/c A has subsidiaries in C

- Monopolies not inherently bad so must show anti-competitive actso A argues they’re not bad monopoly b/c only making 10%

monopoly profits- Court says amount of profit is irrelevant b/c excess profits aren’t the

only reason monopolies are condemned Depresses innovation b/c monopolists have no

reason to innovate Bad for consumers

o Court dislikes A’s conduct: price squeezing comp.’s & excess capacity to deter others from entering market

- L says excess capacity is an implied threat to entrants – DeBeers diamond ex. can flood market w/ product if new entrants tries to compete w/ you

- Don’t have to prove intent to monopolize b/c it’s assumed that everyone’s goal is to be a monopolist

- Conduct is condemned not structure – monopolies are only illegal if anti-competitive methods are used to obtain the monopoly

- 90% market share doesn’t mean necessarily illegal o What monopolies are ok

Innocent monopolies – those that are achieved thru good business not by hurting comp.’s

Natural monopolies – some industries are most efficient as monopolies, like utilities (these are usually regulated by gov’t)

- Excess capacity isn’t enough to prove monopoly these dayso Situation now is cartel between ALCOA, Reynolds, & Kaiser

- When trying to prove monopoly want narrowest market possible – basically want product to have it’s own market – as D winning market share means winning case b/c can’t violate §2 w/o it

o This is b/c w/o market power can’t hike priceo Supra-competitive prices – those above competitive price

- Cross-elasticity of demand o (anti-trust definition not economic definition) o Increase in price of one product leads to increase in

demand of another product – ex. cola $$ buy root beer o If you hike price what will consumers jump to? What’s

reasonable interchangeable w/ high priced producto Monopoly over product doesn’t mean monopoly market

share b/c market may include substitutes that price discipline one another

DuPont- Monopoly power is power to control prices or exclude competition- Product Market

o D wants market to flexible packing materialso Gov’t wants market to be cellophane b/c D’s share is 75%

- Argue cellophane not reasonably interchangeable b/c of certain qualities it has other wrappings don’t have

See-thru Moisture proof Very strong

o Court says other flexible wrapping materials included in market b/c they price discipline D & are reasonably interchangeable for consumers - Market def doesn’t make sense b/c C used for

specific things (i.e. 75% of cigarettes)

- Also other wraps cost much less than C – so prob not reasonably interchangeable b/c C still making sales

- The Cellophane Fallacy – although C costs much more court says other wraps discipline it b/c D can’t raise price w/o losing sales on C – but this is b/c D was already charging monopoly price for C

Cross elasticity of demand will produce too big a market if D already charging monopoly price

- 11th Circuit list of market defining factors – Anchor o Do products & services have sufficiently distinctive useso Do firms routinely monitor ea. other’s actions & adjust own

prices, at least it part, on basis of other firms priceso Extent to which consumers consider various categories of

sellers as substituteso Does a sizable price disparity between different types of

sellers persist over time for equivalent amounts of comparable goods

Under this list D’s market would be cellophane- Boxing Case – Championship bouts are different market from non-

champ even tho products are similar o Ticket prices highero Ads priced higher o TV rights priced highero Court says price differential means different market w/o

reversing DuPontTelex- PM – peripheral computer components

o T argues just IBM ones b/c IBM & non-IBM not reasonably interchangeable for consumers

o IBM argues all peripherals- Court defines market as all peripherals – why?

o Cross elasticity of supply – producers can easily change compatibility of their peripherals

- Problem w/ court’s reasoning?o Court says T could switch to making non-compatible

peripherals – but this wouldn’t price discipline IBM o Cross elasticity of supply would be other peripheral makers

ability to switch to making IBM ones & price discipline IBM- Cross elasticity of supply asks which producers can change their

production to enter market where monopolist is charging too much in order to price discipline M

o We then include these in product market Ex. cola – would include other soda producers

- 9th C. has said defining market must include cross elasticity of supply – but many courts & lawyers don’t b/c it’s too complicated

- For geographic market analysis need to look at supply as wello Where can consumers go?o Where do new competitors come from? Look at

Nature of market – hard to transport or perishable will mean local market

Transportation costs – high means more local market Tariffs – if high market prob. not int’l

Grinell- PM – central station alarm service

o D argues wide market, include: non-automatic & automatic alarms, watchmen services & audible alarm systems

Court says watchmen diff. product b/c cost more – said cost didn’t matter in DuPont

o Court says all these diff. products b/c none have same group of characteristics as central station services

- Geographic market – nat’l o Consumers need service station no more than 25 m awayo Court relies on G’s policies re: pricing, etc. to show nat’l

L notes that this is completely irrelevant from consumer perspective

Court’s reasoning irrelevant b/c look at comp’s reactions not D’s policies

Fact that can charge monopoly prices in some places proves market isn’t nat’l b/c if it were comp’s would enter markets where G had monopoly & price disp.

Geographic markets here are localized - Grinnell definition of §2 violation

o Possession of monopoly power in the relevant market & the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen or historic accident

- Grinnell Testo Element 1 – Monopoly Power

Product market Elasticity of supply & demand

Geographic market Where consumers & producers come from

Monopoly power Market share (look to Circuit for percentages) Barriers to entry

(Relevant if present but not req’d part of test) Supra-competitive profits Unused capacity Competition trends – businesses exiting?

Price discrimination – only a monopolist cano Element 2 – Conduct

Monopoly/Predatory/Exclusionary/Anti-competitive conduct

o Element 3 – Affirmative defense LBJ –of legitimate business justification justification unrelated to suppression of comp. –

something that helps consumers - In addition to element 2 private pl.’s must also prove standing &

personal injury United Shoe Machinery- GT 1

o Product – shoe making machineso Geographic – nationwideo Monopoly power

Large market share Barriers to entry

Not anti-comp: technical know-how, financing, patents, customer satisfaction, good renewal

Anti-comp: lease-only policy, full capacity, cancellation fee, free repairs

- GT 2: barriers to entry can be used to prove anti-competitive conduct but only ones that are anti-comp in nature

o Lease-only policy No potential for secondary market Lease terms (10 yrs., etc.) make it hard for new

entrantso Full capacity clause

Hard for customers to try out competitors’ productso Cancellation fee

Customers won’t switch – expensive to induce them o Free repairs

This is a tying arrangement No ISO’s New entrants must offer service

o U’s argument was monopoly necessary to support R & D – court said R & D isn’t a defense to §2 violation

o Court rules U’s anti-comp conduct prohibited from now on- Exclusionary isn’t necessarily anti-comp violation of § – sometimes

it’s just competition - Two different types of remedies

o Structural (changing makeup of firm) o Conduct (prohibiting certain conduct)

Berkey Camera v. Kodak- GT 1

o PM (there are a bunch but we only care about 2) Cameras (amateur conventional still cameras) Film

o Geographic market – Nat’l o Monopoly power

Camera market share varies but always high Way court defines market implicitly finds other

cameras not reasonably interchangeable Film – high market share & high price

- GT 2o Film – K has better product – anti-trust doesn’t condemn

monopolies that result from competition on merits So GT 2 not proven b/c monopoly didn’t result from

anti-comp conducto Cameras – B argues:

K should’ve released new product info to comp’s so they could compete

Court says firms not req.’d to help free riders New film that only fit new cameras hurt comp.’s b/c

consumers wanted to use new film Court says K got comp advantage b/c it

developed new product – comp.’s copied later K should’ve made new film for all formats

Court thinks this might be a good argument but B didn’t have evidence that it lost sales

o Court notes that B didn’t raise winning argument K couldn’t refuse to sell film to B

- L notes that this case comes down to really bad lawyeringo Failed to make the best argumento Made bad argumentso Didn’t show damages

- Using monopoly in one market to get advantage in another market is not a violation – might be violation to use one monopoly to get another monopoly – these are both called monopoly leveraging

Cal. Comp. v. IBM- CC sells peripheral devices for IBM computers – IBM creates

computer that includes peripheral devices in CPU - This has an exclusionary effect but it’s not exclusionary conduct

o Innovation wasn’t to hurt comp.’s More efficient Better product Easier for consumers

- Court says don’t want to ban innovation

- If comp complaining is less efficient there isn’t a good anti-trust argument b/c less efficient firms should be driven out of business even under normal competition

LePage’s v. 3M- GT 1

o PM = transparent tapeo GM = nationwideo Monopoly power

3M has 90% market share Barriers to entry

Economies of scale necessitate large sales volume Anti-competitive conduct by 3M

- GT 2o Bundled rebates

Discounts across all product lines but only if targets reached in each line – result is customers buy all their products from 3M in order to get rebates

L only makes 1 product so can’t compete 3M argues not predatory pricing b/c selling above cost

They’re using monopoly profits to subsidize losses from products in competitive markets

o Excusive Dealing Arrangements (EDA’s) Blocks comp’s from getting customers

- GT 3 – LBJo Consumers like single statements

Unrelated to bundled rebates o Single shipments easier

Also unrelated – LBJ must be related to specific anti-competitive conduct

Dentsply- G 1

o PM = fake teeth No reasonably interchangeable products No evidence other producers will switch to making

fake teetho GM = nationwideo Monopoly power

Market share 75% - 80% Barriers to entry

Exclusionary distribution scheme – criterion 6 Monopoly profit

Looks like they’re charging monopoly price Aggressive price increases

- G2o Dealer agreement clause (criterion 6) req.’s them not to

sell other manu’s products Dealers must comply b/c won’t make enough sales

w/o D’s products – effect is to exclude other manu.’s from distribution networks of dealers

o District court said comp.’s could sell directly to labs o 3rd Circuit reverses – saying dealers critical b/c

Reduces trans costs b/c can buy all products from same source & return easily – plus have credit

Get discounts from dealers Manu. don’t have to deal w/ credit risks, etc.

o Thus selling directly to labs isn’t viable business solution - G3 – LBJ – can’t say exclusive contracts were more efficient b/c

allowed some dealers non-exclusive contractsEssential Facilities Doctrine- When does a monopolist’s denial of access to an essential facility to

competitors equal anti-competitive conduct?- This comes from SCOTUS case Terminal RR

o D controlled only rail bridge across Miss. River o Court ruled acquisition & control of bridge violated §§ 1 & 2

b/c it kept other RR’s out of marketo If monopolist controls something that’s

essential/necessary to compete & refuses to allow comp.’s access under certain circumstances this constitutes monopoly conduct

o Lower courts name this essential facilities doctrine- Otter Tail – electric co. forced to share transmission lines

o Why forced to share? Natural monopoly – most efficient to have just one

set of facilities (wouldn’t make sense to have more) This was a regulated industry – OT got monopoly thru

gov’t subsidy & was protected by reg.- EFD test (sample see circuit for exact)

o Control of an essential facility by a monopolisto Comp.’s inability to reasonably duplicate E.F.o Monopolist denies access to E.F. to comp.’so Feasibility of sharing/ providing access

- Way to satisfy GT 2- EFD is very controversial – tends to be used only where there’s

o Natural monopoly; or

o Input (facility) was created as part of reg. scheme; or o Facility is owned or subsidized by gov’t

These are not req.’s just seems what L thinksAspen Ski- SCOTUS doesn’t rule on whether EFD is a doctrine - GT 1

o PM = Downhill skiingo GM = Aspen, CO

No discussion b/c lawyers for AS conceded which was really stupid b/c if they’d gotten GM widened they would’ve won b/c no MP

o MP = large market share- GT 2

o AS acquired all but 1 mountain – jointly marketed pass for all mountains w/ pl. – then stopped joint pass

o Refuse to accept pl.’s vouchers & won’t sell pl.’s tix to AS mountains

o Pl.’s market share dropped a lot b/c customers wanted to ski multiple mountains

o AS argues has right to chose who it does business w/o Court cites Lorain Journal

Have right to chose w/ whom to do bus. but can’t refuse to deal for anti-comp. reasons

o Court says no reason for AS not to accept business Important point for court was that this dist. system

had functioned well for years there was no reason for AS to change it other than to exclude pl.’s

Terminated a profitable business relationship- LBJ

o Monitoring issues & inconvenience re: vouchers pre-textualo Quality control

There’s no evidence AS rep. hurt & consumers want multi-mountain pass

If monopolist foregoes profits & angers customers only reason is to get long term monopoly profits

- Intent – this isn’t officially part of test but creeps in sometimes – here court focuses on AS’s motive especially during LBJ

- L says this isn’t an element but might come in on GT 2Trinko- GT 2 – EFD

o Good EFD argument b/c D controls essential phone lines Economically & physically very difficult to replicate D shared access but at much slower service – thus

made it impossible for comp.’s Feasibility obvious b/c D already sort of sharing

o Court doesn’t rule on whether EFD is a doctrine just says it doesn’t apply here b/c D is sharing- Pl. argues D is refusing to deal in violation of §2 – like

in Aspen – also violates Telecom statuteo Court says there’s a difference bet. anti-trust duties &

those created by statute here Anti-trust can’t be used to enforce statutory duties

o Different from Aspen – that only applies to contracts entered into of their free will – here sharing was forced

o Court thinks anti-trust unnecessary b/c reg. regime here This is implied immunity but statute specifically says

antitrust laws not overruled here- Reasons regulation didn’t work as well as antitrust would have:

o D wasn’t fined enough – still made profito Comp.’s ruined – no damages for them under reg.

- Trinko makes it hard for Congress b/c they basically can’t create a regulatory state & save antitrust

- Also limits usefulness of Aspen – D’s can just distinguish like Trinko Patents in Antitrust- Having a patent allows you to exclude others from making your

product – it doesn’t give you any rights re: selling etc.- Does a patent give you a monopoly?

o Only if you succeed in selling your product o Might be other products w/ cross elasticity of demand o Need market power o Still have to go thru normal G1

- Patents re: Grinnell Testo Can create barrier to entry to show market power – GT1 o Can also be used to show anti-comp conduct – GT2

Walker Process claim WP argued §2 violation b/c monopolist got monopoly

power thru patent that was procured by fraud SCOTUS held this one way of satisfying GT2 Can only be used where patent is being enforced by

monopolist against comp. – i.e. threats of suit Handgards case extended WP to anytime there’s a

fraudulent patent for that circuit- Microsoft court gave process for Grinnell test after element 1

o Pl. must show harm to competitive process & consumers o D can give LBJ o Pl. can rebut (if does it wins)o If pl. can’t rebut must show anti-comp. harm outweighs

pro-comp. benefit Are there less restrictive alternatives?

o Courts focus on effect of conduct not intent when deciding whether harm outweighs benefit

Microsoft- G1

o PM = Intel compatible PC operating systems Non-compatible systems not include b/c high

switching costso GM = nationwide o MP

95% market share Barriers to entry

Network effect – value of a good increases the more people buy it – i.e. phone

Application barrier – need a larger enough base of both consumers & software developers – this was natural but M exacerbated it

M blocks new cross platform tech that would allow software to work on all OS’s in order to maintain app. barrier

- GT2 o Microsoft blocks Netscape in order to stop middleware so it

can maintain monopoly on OS’s M made contracts w/ OEMs so can’t remove IE

OEMs want only 1 browser icons so won’t put Netscape – excludes N from market

- GT3 – LBJo M argues infringement of IP re: desktop if OEM’s allowed to

remove IEo Court rules M’s IP infringed only where desktop radically

changed – thus can’t block OEM’s from removing IE icono M’s EDA’s w/ AOL violation b/c excluding comp.’s isn’t LBJo M’s agreement w/ Apple also anti-comp. b/c used threats to

get hem not to do bus. w/ NAttempt at Monopolization - Elements (this is from Spectrum Sports):

o Specific intent to monopolize Hard to prove – need evidence from w/i firm that it

was trying to drive comp.’s from market o Predatory conduct

Same as GT2o Dangerous probability of monopolizing relevant market

Same as GT1 – establish thru market share but don’t need as big a market share as monopolization

SECRET HANDSHAKE – in court you'll do this element first b/c it's a good screening filter

Predatory Pricing & Bidding- Predatory pricing = selling product at less than cost – seller incurs

loss w/ every sale b/c have long run goral of becoming monopolist & re-couping losses thru monopoly profits

Brooke Group- PM = Generic cigarettes

o Brand name co.’s are losing sales to B’s genericso B argues D entered generic market & gave big discounts

which pushed B out of market b/c only room for 1 generic o B says D wanted them to raise price of generics so it was

closer to brand names – not traditional pred. pricing – D wasn’t looking to be monopolist just wanted to stop losing sales to generics

- Legal test for predatory pricing o Pl. must est. that prices complained of are below

appropriate measure of predator’s costs In theory predominant test is Areeda-Turner test –

says marginal too hard to define so use average variable cost (means not including fixed costs)

But some courts don’t do thiso Dangerous probability D will acquire & maintain monopoly

long enough to re-coup losses Req.’d b/c lower prices are good for consumers Factors to determine whether recoup-ment likely

Size of losses Relative financial strengths of firms

o Strong v. weak will mean easier to become monopolist

o Pred. pricing only works if threat credible Market conditions Barriers to entry

o If no barriers monopoly won’t last Production capacity

o Must be able to supply whole market in order to be monopolist

o Court thinks probability of recoupment is low here

o What do the facts show? This worked b/c only had to do it for short time B was in poor financial shape but D was strong High barriers to entry High production capacity

- L notes that some circuits include intent in what pl. must proveWeyerhaeuser- Pl. & W in lumber trade – buy sawlogs in order to make lumber

- Pl. claims W tried to drive it out of business by paying too much for sawlogs – price too high for pl. to sustain business

- Court says predatory bidding is analogous to predatory pricing o Benefits consumers b/c if D’s buy more inputs will produce

more outputs which will drive down price o Both involve unilateral pricing to hurt comp’so Both look have competitive aspect (good for consumers)o Idea is take short term losses in order to control market

Here want monopsony or control of buying market If D is only buyer of inputs can tell supplier to lower

price – supplier has to comply- Court say this doesn’t effect consumers

o L says if you have control over inputs you can also raise output price & why not – thus it is bad for consumers

- Same test as pred. pricingo Must show predator is paying so much for input that it’s

taking a loss on sales – costs above price- In Brooke Group & Weyerhauser court is saying this pricing doesn’t

happen b/c not rational economicallyo L says this conduct is rational b/c it’s exclusionary

Sherman Act §1- §1 “Every contract, combination or conspiracy in restraint of trade

among the several states or between nations is illegal” o Can’t be that every contract is illegal

- So what does it mean?o 1st element (contract, combination or conspiracy) –

agreement or concerted actiono 2nd element (in restraint of Trade) – court decided this

meant unreasonably restrains tradeo 3rd element – must show effect on interstate commerce

- 3rd elemento Everything effects interstate commerce for antitrust o Have to cover this but it’s easily satisfied

- 1st elemento Agreement doesn’t have to be explicit – can be implied o How do you prove agreement?

Written & signed agreement Testimony re: oral agreement Electronic surveillance by authorities

o If no direct evidence – must use circumstantial evidence Courts willing to infer agreement based on conduct

Conscious parallelism – comp.’s doing same thing in awareness that’s what’s happening

Price leading isn’t a violation – one firm announces price hike then looks to see what others do – if others follow price sticks otherwise will drop price back down – no agreement here so no violation

- Critical distinction bet. horizontal & vertical agreement claimso Horizontal – among comp’s o Vertical agreements – bet. two or more players not at same

level – ex. distributor and retailer Vert. judged less harshly b/c necessary for distr. &

have efficiency gains - Cartel = agreement among comp.’s to fix prices

o Act like monopoly – raise prices & lower output o Some scholarship says cartels less dangerous b/c

inherently unstable due to incentive to cheat - What does industry need for stable cartel?

o Huge barriers to entryo Few players – easier this way but have been big ones tooo Must be able to detect & punish cheating

Large capacity – creates ability to flood market if anyone cheats – like DeBeers ex.

Need to able to make credible threats Can also req. entry deposit which is forfeited if cheat

o One dominant player as manager makes it more stable o Stable commodity, no innovation o Stable demando Communication between players

One way is trade associations o Must be able to do all this w/o being detected

Tension here is that stable cartel req.’s transparency among members but must be opaque to authorities

Interstate Circuit- Big movie exhibitors (E’s) worried about smaller exhibitors (e’s)- E’s convince distributors (D’s) to set restrictive contract w/ e’s

o e’s must show agreement among D’s- Element 1 – evidence of agreement – all circumstantial here

o All D’s got same letter w/ threat from E’so All D’s are acting same

o This only works/is rational if all D’s involvedo No alternative explanation for this behavior

- §1 element 1 for hor. agreement w/o direct evidence o Conscious parallelism

All involved in same conduct Can’t use conscious parallelism to show agreement

vertically b/c actors won’t be doing same thing since they’re on different levels of distribution chain

o Plus factors Things that cause court to believe action wasn’t

taken independently but was b/c of agreement- Conscious parallelism isn’t enough on it’s own you need plus factors

– problem is the legal test is called just conscious parallelism - Examples of plus factors

o Artificial standardization of product No efficiency or consumer expectations reason

o Increase in price in a time of decrease in costo Conduct is rational only all comp.’s do ito Radical departure from preexisting policyo Unilateral failure to justify or explain conduct o Industry structure conducive to collusion

See factors for markets conducive to cartels - How is plus factors prong applied?

o Establish conscious parallelism then list plus factors that are present & explain how this leads to inferred agreement

Ideally find a case w/ similar facts

American Tobacco- D’s prices were identical for 20 yrs. – increases happened in lock

step form on same day – continues even when costs were decreasing – had no explanation for conduct

Theatre Enterprises- D’s refused to give pl. A films – he claimed agreement among D’s- Can’t to infer agreement – conscious parallelism w/o plus factors

o Economic reason for all to independently deny him A films b/c he was a suburban exhibitor

Lower attendance in suburbs o Also pl. demanded exclusive license

Doesn’t make sense for them to give him this when he has lower attendance

They make more money w/ big theatres in cities even w/o an agreement among D’s

This is a rational profit maximizing action for ea. of them independently

o Also said hadn’t agreed & explained why conduct rational

Matsushita- Japanese TV manufacturer’s are engaging in predatory pricing in

American market to drive American firms out of market and then operate as cartel charging super competitive prices

- SCOTUS Holdingo Predatory pricing highly unlikely b/c hard to recoup lost

profits – not economically rational Pl. must present evidence that tends to exclude

possibility that actions were competitive - Evidence of agreement

o Market in Japan is oligopolistic High barriers to entry Small number of players

o Higher fixed costs Means JM’s must operate at max capacity – want to

get rid of comp’s to ensure enough sales o Capacity exceeded needs of Japanese market

Had capacity to supply US marketo Agreements on min. price & distribution in US

Cartel maintenance- Evidence showed was possible to recoup profits later- Difference bet Interstate Circuit & Matsushita

o In I court sees conduct didn’t make sense unless firms working together

o In M court says conduct does makes sense independently b/c can gain customers

In M court says agreement not rational b/c too risky Problem is ignore relevant evidence n favor of theory L isn’t saying there was a cartel just that there was

enough evidence to go to jury trialColgate - C is engaging in resale price maintenance (RPM)

o C announces price it wants charged & says won’t do bus. w/ anyone charging different price

- Court says RPM illegal – manu.’s can’t agree on price w/ D’s - But court finds no agreement here

o Co.’s can make unilateral business terms – this isn’t agreement b/c D’s don’t have to follow

As long as no explicit or implicit agreement ok D’s can’t signal agreement at all

Monsanto - Pl. is dist. terminated for not following RPM plan - 7th Circuit complaints from other dist.’s enough to show agreement

bet. dist.’s (D’s) & manu.- SCOTUS reverses

o Must be evidence that tends to exclude possibility manu & non-terminated D’s were acting independently

o Evidence that they weren’t acting independently- M told pl. to raise it’s prices- Also said other D’s were complaining about pl.- Didn’t let other D’s cut prices

- Court finds evidence did show there was an agreement - Subsequent factors considered to fulfill SCOTUS test

o No independent business reason for action- M has a reason b/c pl. was free-rider

Copperweld- Corp. can’t conspire w/ it’s wholly owned subsidiary - § 1 goal is to prevent joining of economic actors that would normally

be competing – parent & sub not comp.’s so no concern of limiting competition here

- Question of whether corp. can conspire w/ partially-owned sub.o L notes would probably need to own at least 75%

Trade Association Info Exchanges (Studied this in bet. history and modern hor. price fixing)

Maple Flooring- Gov’t doesn’t like trade assoc.’s activities

o Activities – w/ cartel theory; court’s analysis Sharing cost info

Can be used to fix prices – they might even give what the price should be but call it cost

Court just says not sharing price info Created standard shipping price booklet

Way to stabilize cartel by closing off a way to cheat on price (i.e. give shipping discount)

Court says this is helpful tool for industry Sharing info on past sales

Cartels use this info to monitor Court says these stats ok b/c generally

available & past trans not current prices Association meetings

Can be used as a forum for members to get together and fix prices

Evidence here shows no discussion of price in mtg.’s but some discussion outside mtg.

Court says ok b/c nothing illegal done in mtg.- Trade assoc.’s main tool for maintaining cartels – SCOTUS has

upheld them but certain info exchanges condemned:o Current prices bad

Past prices oko Price info bad

Cost info oko If info includes identification of parties bad

If not oko If info happens in concentrated market bad

Less concentrated market bettero If info aggregated by 3rd party this looks better o If info generally available to public looks better

Horizontal Price Restraints (History)- SCOTUS vacillates on what rule to apply to these restraints Chicago Board of Trade (RoR)- Reasonableness turns on whether restraint regulates trade and thus

imposes competition as opposed to suppressing or destroying competition

- Rule of Reason – see p. 191:o Define market (like in §2) – w/i market look at

Nature of Restraint Effects (actual or probable) History of restraint & it’s purpose Market condition before and after restraint

imposed- Application here (L says court screws up application)

o Nature Court says it encourages traders to decide on price

before trading is concluded for the day Rule only effects small area of market

o Effects of rule No appreciable effect on prices

No evidence either way b/c DC didn’t allow it – thus court is making factual finding w/o facts

Court says rule improved market b/c allowed trading after close of day – after hrs. market

L says this doesn’t justify rule b/c gov’t wasn’t attacking after hrs. market just attacking price fixing for it

Trenton Potteries (Per Se)- Market – bathroom pottery- D’s admit price-fixing but say their price was reasonable

- Trial court gives jury per se instruction - SCOTUS reinstates trial court conviction

o Some price-fixing per se illegalAppalachian Coals (RoR)- Coal producers agree to have common selling agent set price - Should be per se illegal but SCOTUS applies RoR – we know this b/c

looking at particular circumstances o Intent – court says good intent – trying to increase

production, R&D, advertising – also want to get rid of deceptive trade practices

L notes dec. practices is code for price comp.o Effect – court says won’t effect nat’l price of coal b/c still

comp. from other areas of countryo Court accepts ruinous competition argument and says

cooperation in order to fix abuses in market ok - Court applies RoR and rules this way b/c Great Depression

o This case is a historical anomaly – but not bad lawSocony-Vacuum (Per Se)- Market = gasoline- Def.’s are oil refineries that are buying up distressed gas in order to

keep their prices artificially high- Horizontal price-fixing illegal per se - Can’t use fixing abuses in market as an excuse - Price fixing = agreement for purpose and w/ effect of raising,

depressing, fixing, stabilizing, or pegging market price- FN59 says illegal regardless of effect – don’t have to show effect - Court distinguishes App. Coals and Chicago Board but it’s decision is

inconsistent w/ themo Both cases had agreements so they were illegal

Horizontal Price Restraints (Modern) Engineers (Court says RoR b/c learned prof.’s; later called Per Se)- Trade assoc. has code of ethics that includes agreement not to

discuss price w/ customers before they have been hiredo This is price fixing b/c stops price comp.

- Court says no per se here b/c these are learned professionals- Application of rule of reason

o D’s argue they can’t have pure comp. in their market b/c would result in bad quality which would be dangerous to public safety

o Court says can’t argue comp. is bad b/c premise of antitrust is comp. good

o Competitive markets will maintain quality of products – consumers won’t buy from eng.’s that make shoddy buildings

- Even under rule of reason they lose b/c agreement stabilizes price and they don’t have an admissible defense

BMI v. CBS (RoR)- Agreement here is bet. composers who allow clearinghouse use of

their work so it can issue blanket licenses for all its titleso Non-exclusive agreement – composers can still negotiate

for use of their work individually- Court says no per se here b/c

o No experience w/ this type of agreement so must look at it more closely (this is a lie b/c there are previous rulings)

o Allows creation of new product (blanket license) that couldn’t exist w/o agreement

- This creates a defense for firms faced w/ Saucony - Case was remanded for rule of reason analysis

o 2nd circuit says agreement survives RoR b/c trans. costs would be too high otherwise

Catalano (Per Se)- Agreement here is among beer wholesalers to stop extending credit

to retailers – R’s claim W’s secretly agreed to stop doing this - 9th circuit said not price fixing b/c

o Lower barriers to entry – newcomers need less capital if they don’t have to extend credit

o Increased visibility of prices – this benefits buyers b/c they have more info on what everyone is charging

L notes price transparency is also cartel stabilizing - SCOTUS says this is price fixing b/c credit lowers price since don’t

have to pay on receipt – so they’re fixing price by eliminating this price comp.

o Stopping credit can also be seen as a way of monitoring a cartel

o Extending credit is a way to cheat on cartel price- SCOTUS cites Engineers as precedent for per se rule (weird!)

o Court acknowledges that under per se rule some agreements that are harmless will be condemned but says it’s ok w/ that

Maricopa County Medical Society (Per Se)- Dr.’s fixed max price – they argue fixing max isn’t bad - Court holds max price fixing has same effect as min. so still illegal

per se – ceiling becomes floor & setting max price hurts ability to compete on non-price factors

o L says important point is that court says Sherman Act promotes all forms of comp. not just price comp.

o No special learned prof.’s treatment here (why?)- Court doesn’t need experience in industry – all industries get same

rule re: price fixing

o In BMI said lack of experience = reason not to apply per se

- Increasing price & decreasing output produce same anti-comp. results, monopolistic

NCAA (Not Per Se b/c NCAA special; do something like quick look)- NCAA is decreasing output by limiting # of games televised - Court says no per se b/c NCAA plays an important role in creating

market – w/o them it wouldn’t exist- RoR – court looks at industry

o Classic argument – NCAA says don’t have market power Court says as matter of law market power not req.’d

but even if it were they have it No elaborate industry analysis req.’d either b/c

this is naked restraint of tradeo Weird b/c they say not doing per se

o Court says no new product – no BMI defenseo Court thinks protecting live attendance argument is pre-

textual – hiking price of one thing increases demand for substitute but that can’t be justification for cartel

o Competitive balance argument also pre-textual b/c other non-restraint ways to do it

- Conclusion is violates RoRo L says this isn’t RoR b/c court isn’t allowing NCAA t make

traditional RoR arguments – later called quick looko Lower courts had to make sense of confusion in categories

created by NCAA – they decided a new category had been created called quick look or abbreviated/truncated RoR

Cal Dental (lower court did QL – remanded for RoR)- CDA is a trade assoc. of dentists – code of ethics creates stringent

req.’s for ads that results in ban on discounts and quality comp. ads- Lower court did quick look – not per se b/c don’t immediately

condemn – go further into examining industry but less than RoRo Looking for obvious effects anti-competitive – great

likelihood of anti-comp. – facially anti-comp.- Found rules clearly anti-comp. b/c too difficult to comply w/ – result

was no one advertised discount or quality claim – less price comp.- SCOTUS remanded for full RoR b/c pro-comp. just.’s might be

substantive – not obviously anti-comp.- But court did acknowledge quick look – says categories hard to

separate – distinctions blurred o Now lower courts must do all 3 cat.’s to be safe

Dagher- Texaco and Shell form joint venture – pool resources & revenues –

sell gas under old names but at set price- Argument is these 2 were comp.’s – now charging same set price

- Court says no violation here b/c only one entity – although selleing under 2 names – co.’s are fully integrated as one

o See Copperweld - Does this give all joint ventures a free pass?

o No this joint venture is special b/c it was approved by State Att. Gen.’s and FTC and was being monitored

o This is different from a cartel just calling itself a joint venture b/c fully integrated re: capital and revenues

Horizontal Non-Price RestraintsTopco (Per Se)- Topco = coop small independent supermarkets – member's average

market share about 6% -- create their own private label for goodso Assoc. created exclusive territory agreements – can only

sell Topco products in your areao T argues it needs exclusivity to compete w/ name brands –

sacrificing intra-brand comp. to create more inter-brand comp.

- Horizontal market divisions are a per se violation- Courts (and D’s) can’t make determination to sacrifice one form of

competition for another – only Congress can- 2 forms of market division – geographic and customer allocationKlor’s (Per Se)- Petitioner is independent electronic store- D’s are chain electronic store and 10 nat’l electronics

manufacturerso D’s agreed at request from chain store not to sell to

petitioner or to sell only at higher priceso D’s admitted this conduct but said they had right to

boycott P if they wanted to b/c P could buy his goods elsewhere

- Holdingo Group boycotts per se illegal under §1

Victim’s size doesn’t matter – even if the conduct won’t effect market generally it’s still illegal

Can become monopolist by elimination of small businessmen

Northwest Wholesale Stationers (RoR)- D = wholesale purchasing coop of office supply retailers

o Non-members can buy but members get better prices- P kicked out of coop they say this is boycott of P- Holding

o Precedent holds group boycotts per se illegal – historically only applied to some group boycotts – those that:

Cut off access to supply, facility, or market necessary to compete

Firm boycotting has market power No plausible efficiency or pro-comp. justifications

o Pl. must present threshold case that boycott in question falls into per se category

o This boycott isn’t per se violation b/c doesn’t fulfill above test – apply rule of reason

They don’t abandon per se illegality of group boycotts but try to finesse category saying some group boycotts won’t be per se illegal

Makes the analysis for boycotts much more difficult- In early cases group boycotts are per se illegal

o After Northwest they’re not necessary so – must apply factors test which is like RoR which completely destroys admin. efficiency reason for having per se rule in 1st place

Indiana Federation of Dentists (Quick Look)- D’s are group of dentists who are agreeing to refuse to submit x-

rays to patient’s insurance - Gov’t argues this boycott – FTC sues them under §5 of FTC Act

o Just do §1 Sherman Act analysis b/c unreasonable restraint is same in both acts

- Based on Northwest not every boycott is per se illegal- This isn’t per se b/c

o Deference to learned prof.’s (they cite Engineers) Weird b/c Maricopa said Dr.’s no deference

- Court applies quick look (only acknowledge this is the standard afterwards – in case call it RoR)

o Market power D’s argue they don’t have market power Court says this looks like naked restraint so no need

to show market power Even if it’s not naked it looks like assoc. have market

power o Restraint unreasonable b/c raises prices & reduces output

Makes insurance more costly Refusing cust.’s a product they want (x-rays)

Group can’t agree to do this – individuals could Likely enough to effect market b/c they’re

withholding info from consumers Weird b/c later in Cal Dental ok to do this

o D’s argue quality of care reason for withholding Wrong legally b/c Engineers says can’t say

competition is unreasonable

Wrong factually b/c there was no evidence that quality of care would be effected

- Court in both NCAA and Indiana did the same thingo Not per se rule of reason but didn’t let D’s make traditional

rule of reason arguments- Lower courts tried to make sense of these cases by creating middle

quick look analysis o Then SCOTUS took credit for it saying they created quick

look in Indiana Superior Court Trial Lawyer’s Assoc. (Per Se)- Lawyers agreed to boycott representing indigent clients until DC

agreed to pay them more- Court rules this is per se illegal b/c naked restraint

o This is despite the fact that These are learned professionals (Indiana) Northwest test

No market power- If you’re rep. pl. in group boycott case argue

o Per se under Trial Lawyerso If not per se under Northwest Wholesalerso If not quick look under Indiana – but L notes he doesn’t

know the difference bet. this and NW per seo If not still anti-comp. effects so condemn under RoR

Vertical Price Restraints Dr. Miles (Per Se)- Manufacturer sets RPM & argues it should have right to set price for

its products - Court says this is restraint upon alienation thus illegal

o Once sold can’t continue to control goods- Thus vertical RPM’s per se illegal

- How can manu. get around Dr. Miles & control retail of products?o Consignment (retain title to products)

Courts do make sure it’s a real consignment o Integrate forward – own retailer/distribution networko Make consumers aware of the MSRP

Creates pressure not to charge more but retailers can still charge less than MSRP

o Franchiseo Colgate

Announce price you want unilaterally w/o agreemento Charge high price to retailers so they have to charge your

price on resale - In Albrecht court said max RPM also illegal per se

- Congress didn’t like Dr. Miles o Miller-Tidings Act – allowed states to authorize RPM’s

This lasted for almost 40 yrs. – resulted in higher prices in states authorized RPM

Congress repealed it so Dr. Miles rules againo This history is important b/c shows empirical evidence of

what happens when RPM is allowed State Oil v. Kahn (RoR)- Court overrules Albrecht – max RPM now gets RoR – b/c

o Maj. scholarship condemned ito Court says hurt retailers b./c manu.’s integrated forwardo Not worried about quality b/c market will demand services

– manu.’s won’t cut prices so low they can’t provide them L notes there’s data to see if allowing RPM setting

hurt services or not – but court doesn’t examine ito Court says businesses won’t act irrationally

L says when you see irrational conduct it’s likely there’s an anti-trust violation

Ex. predatory pricing – American Cano Not worried about ceiling becoming floor b/c courts will do

RoR to determine it this is the case In Maricopa they said no way to tell

- So vert. max price fixing gets RoR but hor. max. price fixing per se illegal – so try to swing the definition your way when arguing

Vertical Non-Price Restraints - Here we’re talking about manu.’s setting restraints for distributors

o Territorial divisions o Customer divisions o Location restraints o Dealer termination

- Exclusive dealing & tying arrangements have different tests so discussed separately

- Why would manu. want to impose these restrictions?o Limits intra-brand comp. which in turn can stabilize RPo Avoid free-riders & maintain services from good retailerso Reward for good retailers o Image and quality control – some manu.’s don’t want to be

associated w/ discounters - In 1963 White Motor court held vertical non-price restraints get RoR- Then Schwinn held vertical non-price restraints per se illegal Sylvania (RoR)- Court says Schwinn overruled – vertical non-price = RoR- Ok to hurt intra-brand comp. in order to increase inter-brand comp.

o But in Topco court specifically said it wasn’t empowered to choose one form of comp. over another

o One might think this meant Topco was overruled but see FN 28 stating that Topco is still good law

- Important point is big diff. bet. vert. & hor. non-price – argue restraint is one or other based on which standard helps you

- Dual distribution cases get RoR as wellBusiness Electronics (RoR)- Manu. agrees to fire free riding dealer to make good dealer happy - D’s argue test shouldn’t be per se b/c there’re legitimate reasons

for this agreement o Increase in inter-brand comp.o Get rid of free-riders

- Scalia doesn’t want this to be per se so he characterizes it as vert. non-price agreement thus RoR under Sylvania

- Vert. price min. must involve actual agreement about price bet. manu. & remaining dealer – not just termination of price cutter

- Apply RoR for all vert. non-price restraints – see Chicago Board o Must define market (like we did in §2)o Purpose

Probable & actual anti-comp. effects Will reduce output Increase price Reduce quality Anti-consumer effect that you can demonstrate

o D can argue LBJ Pro-comp efficiencies outweigh anti-comp. effects

o Pl. can rebut – LBJ Doesn’t outweigh anti-comp. effects Pre-textual – just made up for litigation Less restrictive alternative to achieve this LBJ

Clayton Act §3 – Exclusive Dealing & Tying- These are types of vertical trade restraints - Note that these are both also ways to satisfy 2nd element of Grinnell

test under Sherman Act §2 violationsExclusive Dealing Agreement (EDA)- Why would parties agree to exclusive dealing arrangements?

o Buyer Lock-in price Ensure supply Deny inputs to comp.’s Secure a standard of quality Reduces trans costs Reduces inventory costs

o Seller Ensure stable demand Reduces trans costs (less advertising, etc.)

Insulate against price decreases Keep sales away from comp.’s Reduces credit risk Get foothold in market (reach min. efficient output

level)o Overall good b/c makes business planning easier – bad b/c

prospects of excluding comp.’s from market- Since there are both good & bad reasons suggests RoR analysis Tampa Electric- Test for violations of §3

o Line of commerce Same test as Sherman Act §2 (GT1) product market

o Geographic market Also same as §2

o Contract must foreclose substantial share of relevant market to be violation

Compare percentage of units in EDA v. total units in market – how much of market is EDA controlling

- Court holds dollar volume of contract alone irrelevant – must look at how much of market this dollar volume represents

- Court holds this contract doesn’t have exclusionary effect on market b/c it’s a small proportion of overall market

- Court is worried about the long duration of contract (20 yrs.) but says in this specific case it’s ok b/c this is public utility that needs to have steady supply of input to ensure supply of electricity

- EDA testo Agreement bet. 2 parties

Explicit – it says it’s an EDA; or De facto – result is exclusive dealing

o RoR analysis elements – always looked at Percentage of market foreclosed

Safe harbor = less than 10% L says don’t see liability for less than 20%

Duration of EDA 1 yr. or less will probably be upheld Termination provision good Tampa anomaly – if you can show a real public

necessity might get away w/ longer termo The rest are sometimes looked at

Alternative distribution channels – if so good Barriers to entry – if high bad EDA use in market – is others use them bad

But some commentators say if you see a lot of them it shows they’re more efficient

o D’s can argue LBJ outweighs anti-comp. effects

- EDA can satisfy anti-comp. activity under Sherman Act §2- L notes that in theory EDA’s are Sherman Act §1 violations but same

test anyway Tying Arrangements- Same legal test under Sherman Act §1 or Clayton Act §3- Tying arrangement test (called per se but L says that’s ridiculous)

o Est. tying arrangement Must be 2 products

- Tying product – one you want- Tied product – one you’re forced to buy

Forcing/conditioning/coercion- Must buy tied product to get tying product

D has sufficient economic power over tying product Not insubstantial $ volume of tied product effected Anticompetitive effects (only in 2nd & 5th circuits)

o D can argue LBJ’so Pl. can rebut

- Weird that dollar volume is test for tying but irrelevant for EDA’s Jefferson Parish- Difference bet. Clayton & Sherman is C limits itself to products so

can’t use Clayton here b/c this is a service - Bring everything under Sherman Act §1 to be safe- Tying test

o 2 products are separate – test is consumer demand Some consumers might want specific

anesthesiologists Billed separately

o Forcing is acknowledged o Sufficient economic power over tying product means need

significant market share 30% not enough – this is a safe harbor

- No violation b/c market share too smallKodak- This could’ve been brought as Sherman Act §2 attempt or

monopolization (satisfies GT2) but §1 tying violations are easier to prove b/c don’t to go into market shares

- Tying here is bet. service & partso Tying – parts tied – service

- Consumer demand shows these products are separate - Kodak argues in reality don’t have market power over parts b/c

equipment is competitive market o When buying equipment consumers look at cost of parts

too – if raised parts prices would lose equipment sales - Court says theory not supported by facts – K raised parts prices

o ISO’s theory of why

Consumers don’t have enough info about cost of parts to evaluate it at time of purchase

Switching costs – some consumers are already locked in w/ equipment – to expensive to switch

- Court just says enough evidence to survive summary judgment Mergers & Acquisitions - 3 types of mergers

o Horizontal (acquiring comp’s)o Vertical (acquiring those have distribution relationship w/)o Conglomerate (acquiring a firm that wasn’t comp or in

relationship w/ you)- Why merge?

o Reduce compo Expand geographically o Create efficiencies (economies of scale & scope)o Tax consequenceso Easier to raise capital (better financial profile)o Use comparative advantageso It’s quicker & cheaper than building capacity form scratch

- Antitrust wants to separate good mergers from bad ones - Clayton Act §7

o No one can merge or acquire another firm where effect would be to lessen comp or create monopoly

- 1992 Merger Guidelineso Idea here is gov’t can challenge mergers & this gives firms

an idea of how to avoid that o Certain info must be filed w/ gov’t before merger o FTC & DOJ divide these o Gov’t has 30 days to challenge

- In most cases if a merger is challenged it goes away- HHI

Calculate everyone’s market share (only those > 1%) HHI = square market shares then add together

o A 40 -- 1600B 30 -- 900C 20 -- 400D 10 – 100 total = 3000 = HHI

o If C & D combined HHI would be 3400A 40 -- 1600B 30 -- 900C/D 30 – 900 total = 3400 = HHI

- Merger analysis test o Line of commerce = PM analysis from Sherman Act §2

SSNIP test (a form of cross elasticity of demand)

Response to small but significant non-transitory increase in price

o Small but significant means 5%o Non-transitory means 1 yr.

Cross elasticity of supplyo Any section of country = relevant geographic marketo Market share

Compare pre-merger HHI (sum of squared market shares of all players in market) to post-merger HHI

If market has HHI of 1K or less 1K – 1800 moderately concentrated 1800 & above highly concentrated

If merger results in HHI higher than 1800 & HHI has increased by more than 50 merger will be scrutinized

If merger results in HHI bet. 1000 & 1800 & merger caused HHI increase more than 100 pts. – red flag

L says no mergers resulting in HHI less than 1800 have been challenged

- These guidelines aren’t law but courts have been adopting these as common law so they are becoming law

- If merger is challenged parties can negotiate w/ gov’t- Once gov’t decides to challenge merger they will go to customers

o PR issue of mergers is convincing customers it’s good o If you can get customers to tell gov’t they agree w/ merger

gov’t will back off - In 1997 guidelines were amended to allow efficiency defense but

have to show certain things about efficiencies:o Have to be merger specific – can’t get them w/o mergero Have to be measurable

Staples - S wants to merge w/ Office Max

o Gov’t wants market to be office superstoreso S wants it to be office supplies

- PM=Court rules office superstores are relevant submarketo Under SSNIP test consumers are treating these as market o Only other office superstores price discipline o Internal docs show D’s think comps are office superstores

- GM = individual metropolitan areas (42 of them) o Consumers don’t leave & suppliers don’t enter

- HHI’so Extremely concentrated before merger – after would be

even higher in fact some monopolies - LBJ

o No barriers to entry

o Court doesn’t like this argument Trend is firms leaving market Hard to enter market b/c of economies of scale Markets are saturated

o S argues will be more efficient after merger Numbers used internally don’t support this – ones

given to gov’t 500% higher than internal ones S argues high pass thru rate

- Court notes historically only passed thru 15%Heinz- H wants to merge w/ Beechnut (baby food) - HHI – pre-merger = 4,775, post = 5,285 – big increase so red flag - H’s argues B & H don’t compete b/c have different geo markets

o Court says they price discipline ea. other thru shelf space competition

- H argues post-merger efficiencieso Can lower cost of production by operating factory at

greater capacity Can do this w/o merger

o B has better recipes Seems pre-textual but could just buy recipes if true

o Innovation – need less comp. for shelf space to make innovation profitable

Just a theory no proofo Structural barriers to collusion

It’s obviously easier to collude w/ only 2 playerso Court doesn’t buy any of these arguments

- Gov’t will challenge merger if:o Anti-comp unilateral effects

Merger effectively creates monopolist Will look for 35% market share

o Anti-comp coordinated effects Market will be susceptible to actual coordination bet.

firms (cartel) or tacit price fixing (implicit)- Merging parties argue

o HHI’s deceptive Won’t actually be able to act like monopolist

o Efficiency Must show these are merger specific And that the numbers aren’t speculative

- Barriers to entry are the main issueo D’s will argue lowo Gov’t will argue high

Standing- Private parties can bring antitrust claims too but need standing

o Brunswick v. Pueblo Bowl-o-Mat Antitrust pl.’s only have standing if decrease in

comp. is causing their injury- Private pl.’s have to show causal antitrust injury

o This is last element in antitrust tests Standing is normally 1st consideration in law Some courts understand that standing should be

considered 1st but some don’t - In context of mergers very rare for private pl. to have standing

o Comp’s of post-merger firm don’t have standing re: Brunswick